India has been battling to secure its energy security in recent months, as its heavy dependence on fossil fuel imports has made it highly vulnerable to a closure of the Strait of Hormuz. Severe energy supply chain disruptions have prompted India to deepen its ties with the United States to secure sufficient liquefied natural gas (LNG) supplies and to reassess its plan to enhance energy security over the coming decades, with consideration of renewable energy expansion.
The months-long restrictions on energy trade through the Strait of Hormuz led to a rise in India’s crude weighted average price from $69 in March to over $114 per barrel in April. This dramatic price increase exposed India’s vulnerabilities to supply chain constraints. India is heavily dependent on imported oil, LNG, and liquefied petroleum gas (LPG), and the war in Iran has significantly driven up prices for all three fuels in recent months.
India is the world’s third-largest oil importer, fourth-largest LNG importer, and second-largest LPG importer. In terms of its domestic energy industry, it is the world’s fourth-largest refiner and fifth-largest exporter of refined petroleum globally. The International Energy Agency expects India to become the largest driver of global oil demand growth between now and 2030, as its population continues to grow and industrialisation accelerates.
Until recently, most of India’s energy imports arrived via the Strait of Hormuz from Russia, while it exports refined products through the same route. Around 45 per cent of India’s crude imports, 50 per cent of its LNG, and 90 per cent of its LPG passed through the strait when it was fully operational.
India used to rely heavily on Iran for its oil; however, stricter sanctions on Iranian energy in recent years have led it to shift its dependence to other Middle Eastern powers, including Iraq, Saudi Arabia, the United Arab Emirates, and Kuwait. Most of India’s LNG came from Qatar, the UAE, and Oman, while its LPG was sourced from the UAE, Qatar, Kuwait, Saudi Arabia, and Oman. Since 2022, India had also begun to rely heavily on Russia for its energy, although U.S. sanctions on Moscow and President Trump’s trade-tariff threats last year have discouraged India from further developing this relationship.
The sudden closure of the Strait in March has prompted India’s policymakers to scramble for alternative energy supplies. Early in the closure, the U.S. Treasury Department announced it would waive sanctions on the purchase of Iranian and Russian crude already in transit. While the Iran waiver is no longer in place, the Russian waiver had been extended to mid-June, with the potential for renewal. This has helped alleviate pressure on India. However, these waivers do not provide long-term security, meaning that India has had to seek a more stable, longer-term energy supply.
In May, India’s Foreign Minister S. Jaishankar announced that the country would be expanding its energy ties with the United States to strengthen energy security, following bilateral talks with U.S. Secretary of State Marco Rubio in New Delhi.
“We spent some time today discussing energy issues, and again, you’re all aware that our government’s fundamental responsibility is to address the needs of 1.4 billion people. Obviously, ensuring the accessibility and affordability of energy for them is our prime objective,” Jaishankar stated.
The United States became India’s top LNG supplier in May, shipping 900,000 tonnes of liquefied gas, or 40 per cent of its needs and a threefold increase from April. It also became the top LPG supplier, sending 630,000 tonnes of the fuel, which was 60 per cent more than it received from the Gulf region that month.
This increase in energy imports was largely driven by the closure of the Strait of Hormuz, although it also reflects the deepening of energy ties between the two countries that began before the war in Iran. Sumit Ritolia, the lead research analyst at energy intelligence firm Kpler, explained, “Going forward, the India–US energy trade will increasingly focus on gas.” Ritolia said that the United States’ abundant resources and expanding export infrastructure make it well suited for energy trade with India.
The Indian government was previously reluctant to purchase energy from the United States due to its high cost, particularly compared with Moscow’s discounted crude. However, the closure of a critical energy trade corridor between Europe and Asia left India with little choice but to deepen ties. U.S. LPG exports to India are expected to exceed 1 million tonnes in June.
While India has been able to alleviate immediate energy pressures by importing more fossil fuels from the United States, the closure of the Strait of Hormuz has exposed India’s vulnerabilities. Greater investment in developing India’s renewable energy capacity could reduce the country’s dependence on fossil fuel imports and ensure long-term energy security, particularly with its energy demand set to grow over the coming decades.
By Felicity Bradstock for Oilprice.com
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